Global losses halted the downward trend in property catastrophe reinsurance prices in Europe at the crucial Jan. 1, 2018, renewals, according to reinsurance broker Willis Re.
Property catastrophe reinsurance rate changes at renewal ranged from flat to an increase of 5% on a risk-adjusted basis for loss-free programs — those on which claims were not made in the previous year — in Europe, Willis Re said in a report published Jan. 2.
The broker, part of Willis Towers Watson Plc, added that the increases came as reinsurers tried to claw back some of the rate reductions they gave to European insurers during previous recent renewal rounds. Although the rate increases were modest in the context of $136 billion of global catastrophe losses in 2017, Willis Re said the outcome in Europe "established a change in trend of the past decade during which we have seen continuous rate reductions."
A trio of Atlantic hurricanes that hit the U.S. and the Caribbean were among the second-half events that made 2017 "one of the worst loss years on record" for the insurance and reinsurance markets, Willis Re said. But with the exception of some smaller, regional events, Europe had "a very benign catastrophe year" in 2017, it added.
On the casualty side, Willis Re said there was a wide range in quoted terms for European general third-party liability reinsurance as traditional program leaders sought "substantial rate increases." In some markets, general third-party liability rate changes ranged from 0% to increases of 7.5%, while in others increases had been over 25%.
In central and eastern Europe, for example, low deductibles and increasing claims activity drove rate increases, while in the Nordics, there was a recognition "of the low frequency and severity of bodily injury claims."
Jan. 1 was also the first big U.K. motor renewal date since the U.K. cut its personal injury discount rate to negative 0.75% from 2.5%, driving up the cost of long-term liability claims. Most U.K. motor reinsurance business renews Jan. 1, and large rate increases were expected because of the rise in claims costs, although there was uncertainty because of plans to increase the discount rate, also known as the Ogden rate, again in 2018.
Willis Re said the picture for U.K. motor was mixed: "Whilst rates are clearly increasing, there is significant divergence of market pricing with a lack of consensus among reinsurers about where the Ogden rate is likely to settle in near future, with a wide variety of assumptions in pricing models."
The renewal outcome in Europe came amid what Willis Re described as a "calm market" across all geographies, despite the heavy natural catastrophe losses. Changes in global property catastrophe and risk rates ranged from 0% to increases of 7.5%.
A heavy year of catastrophe losses would normally be expected to trigger large reinsurance rate increases across the board at renewals. But Willis Re said overall price spikes were kept at bay by strong reinsurance market capitalization, losses being split over a number of different events and the fact that a large portion of the losses was retained by the primary insurance market.
Even so, areas most affected by the catastrophes did see big increases. Loss-hit property catastrophe reinsurance programs in the Caribbean saw increases of between 20% and 40%, while in the U.S. the increase was between 5% and 10%.
Jan. 1 is the main global reinsurance renewal date of the year. Other key dates are April 1 and July 1; the latter is particularly significant for Atlantic hurricane business.
